Question 1

On June 1 of the current year,Jack and Angie purchased a rental beach house for $900,000 and rented it right away.Of that amount,$600,000 was for the land value.How much depreciation deduction can Jack and Angie take in the current year? You may need to refer to the depreciation tables.)

Accepted Answer

Since the purchase was made in the current year, the mid-quarter convention shall be applied. Therefore, the depreciation rate would be 1.5% (from Table A-6) multiplied by 40% (building value, which is $300,000).

Depreciation deduction = [(900,000-600,000) x 40%] x 1.5% = $5,910.

Hence, the correct answer is C.

Question 2

In the current year,Marnie rented her vacation home for 75 days,used it for personal reasons for 22 days,and left it vacant for the remainder of the year.Her income and expenses are as follows:  What is Marnie's net income or loss from the activity? Use the Tax Court method.Round your answer to the nearest whole dollar)

Accepted Answer

According to the Tax Court method, rental expenses can only be deducted up to the amount of rental income received. In this case, Marnie's rental income is $27,000 and her rental expenses are $15,877. Therefore, her net income from the rental activity is $27,000 - $15,877 = $11,123. So, the correct option is D.

Question 3

What is the proper tax treatment of capital improvements for a residential or commercial rental property?

Accepted Answer

Capital improvements for a residential or commercial rental property must be depreciated using straight-line over 27½ or 39 years, depending on the type of property. This means that the cost of the improvement is spread out over its useful life and deducted proportionally each year.

Question 4

Charles and Sarah own a home in Palm Springs,CA.During the year,they rented the house for 40 days for $5,000 and used it for personal use for 18 days.The house remained vacant for the remainder of the year.The expenses for the house included $16,000 in mortgage interest,$4,500 in property taxes,$1,000 in utilities,$1,200 in maintenance,and $9,800 in depreciation.What is the deductible loss for the rental of their home without considering the passive loss limitation)? Use the Tax Court method for allocation of expenses.

Accepted Answer

Under the Tax Court method, since the property was rented for less than 15 days, the rental income is not taxable, and expenses are not deductible. Therefore, there is no deductible loss.

Question 5

Jamison owns a rental cabin in Mammoth,and travels there for maintenance three times a year,between January and June.The round trip to Mammoth from San Diego where Jamison lives,is approximately 405 miles.How much travel costs can Jamison deduct per year related to his rental cabin? Round your answer to the nearest whole number)

Accepted Answer

Jamison can deduct travel costs for maintenance trips related to his rental property. The IRS standard mileage rate for 2023 is 65.5 cents per mile. The round trip is 405 miles, and he travels three times a year, so the total miles are 405 * 3 = 1,215 miles. The deductible amount is 1,215 miles * $0.655 = $795.075, rounded to the nearest whole number is $795. However, the closest option provided is $656, which seems to be an error in the options.

Question 6

Georgia owns a home in Colorado that she rents for $1,200 per month she does not use the home personally).While she was in Europe in November,the roof in her rental home leaked and her tenant repaired it for $900.For the following month's rent December),her tenant paid her $300 for rent $1,200 - $900).What amounts should Georgia include for rental income and repair expense,respectively,for December?

Accepted Answer

Georgia should include the full rental income of $1,200 for December, as the tenant's repair expense is considered a separate transaction. The $900 repair cost is deductible as a repair expense.

Question 7

Which of the following is not considered a capital improvement for a rental activity?

Accepted Answer

Repair of a leaky water pipe is considered a maintenance expense, not a capital improvement. Capital improvements generally involve adding value to the property and increasing its useful life, such as adding a bathroom or replacing the roof. New landscaping could potentially be considered a capital improvement if it significantly enhances the property's value and useful life.

Question 8

Brad and Kate received $9,500 for rent from Mike and Janet,who are renting their home in Santa Ana,California.Brad and Kate did not use this property for personal use.The rent covers eight months from August 1 of the current year to March 31 of the following year.The amount also includes a security deposit of $1,500.How much should Brad and Kate report as rental income in the current tax year?

Accepted Answer

The rent covers eight months from August 1 of the current year to March 31 of the following year. So, the rental income for the current tax year is 8/12 * $9,500 = $6,333.33. However, the security deposit of $1,500 is not included in the rental income. Therefore, the rental income that Brad and Kate should report in the current tax year is $6,333.33 - $1,500 = $4,833.33.

Question 9

Jane and Don own a ski chalet in Lake Tahoe,NV and rented it for 12 days for $8,000.The rest of the year,the chalet was used by them and their friends and family.What is the proper tax treatment of the $8,000?

Accepted Answer

If a property is rented out for fewer than 15 days in a year, the rental income is not included in gross income according to IRS rules.

Question 10

May owns a four-plex in Garden Grove,CA.She rents out 3 units and lives in the fourth.Her income and expenses for the entire four-plex are as follows: mortgage interest $8,200,property taxes $9,000,insurance $3,000,utilities $2,000,repairs and maintenance $1,000,depreciation on the entire complex of $5,000,and rental income of $25,000.What amount of net rental income or loss should May report on her current tax return?

Accepted Answer

May's net rental income is $25,000 - $8,200 - $9,000 - $3,000 - $2,000 - $1,000 - $5,000 = $3,850.

Question 11

Naomi and Matt received the following amounts from a tenant who is renting their condominium during the current year rent is $1,500 per month): 2 months rent $ 2,200
Deposit 1,600
Rent for two months would normally have been $3,000,but the tenant paid $800 for a plumbing repair.The repair would normally have been paid by Naomi and Matt but the problem occurred while they were out of town.How much should Naomi and Matt report as rental income for the current tax year?

Accepted Answer

The rental income for the current year is the total amount received from the tenant during the year, which includes:
- 2 months rent = $1,500/month x 2 = $3,000
- deposit = $1,600

The plumbing repair paid by the tenant does not affect the rental income, as it is an expense that would have been paid by Naomi and Matt if they were in town. Therefore, the total rental income for the current tax year is $3,000 + $1,600 = $4,600. Therefore, option (C) is correct.

Question 12

Which of the following expense items isare)deductible as rental expense for a rental property?

Accepted Answer

All of the listed expenses are deductible as rental expenses for a rental property. Management fees, repairs and maintenance, and travel related to the property are all necessary expenses incurred for the rental business and can be deducted on the tax return.

Question 13

A property that has been rented for 120 days and used for personal use for 13 days should be categorized as:

Accepted Answer

The property is primarily used for rental purposes since it was rented for more than 14 days and the personal use was less than 10% of the rental days.

Question 14

Jacqueline owns a condominium on an island in Washington that was rented out all year for $30,000.She incurred the following expenses:  What amount of net income or loss does Jacqueline report from this rental property?

Accepted Answer

The answer of Jacqueline owns a condominium on an island...

Question 15

Lupe rented her personal residence for 13 days to summer vacationers for $3,800.She lived in the home for the rest of the year.She has AGI of $95,000 excluding the rental income.Related expenses for Lupe's personal residence for the year include these:  What is Lupe's AGI after taking into consideration the rental income and related expenses?

Accepted Answer

The answer of Lupe rented her personal residence for 13...

Question 16

Mario owns a home in Park City,Utah,that he rented for $1,600 for three weeks during the summer.He lived there for a total of 120 days and the rest of the year the house was vacant.The expenses for the home included $6,000 in mortgage interest,$900 in property taxes,$1,300 in maintenance and utilities,and $3,500 in depreciation.How much net rental income or loss from the Park City home would Mario report for the current year? Use the IRS method for allocating expenses.

Accepted Answer

Since Mario rented the home for less than 15 days, the IRS considers it a personal residence, and he does not need to report the rental income or allocate expenses for tax purposes.

Question 17

Which of the following statements is not true about vacation home properties?

Accepted Answer

The answer of Which of the following statements is not...

Question 18

Hugh and Mary own a cabin in Big Bear that they rented for 45 days at $4,500.They used the cabin for personal use for 30 days during the year.The allocated expenses related to the cabin of $6,000 resulted in a net loss of $1,500 for this rental activity.What is the proper tax treatment of these amounts by Hugh and Mary?

Accepted Answer

Hugh and Mary should report the rental income and related expenses on Schedule E of their tax return. Since the rental activity resulted in a net loss, the expenses cannot exceed the income. They can still deduct the maximum amount of expenses allowed, but the net loss cannot be used to offset other income on their tax return. Personal use of the cabin does not need to be reported.

Question 19

If a taxpayer materially participates in a real estate activity as a real estate professional,the income and expenses of the activity should be reported on:

Accepted Answer

If the taxpayer materially participates in a real estate activity as a real estate professional, they are considered self-employed and must report their income and expenses on Schedule C (Form 1040), which is used to report profits or losses from a business or profession as a sole proprietor. This schedule must be filed with the taxpayer's individual tax return (Form 1040).

Question 20

Which of the following is not considered an ordinary expense for a rental activity?

Accepted Answer

All of the listed expenses (property taxes, advertising, and insurance) are considered ordinary expenses for a rental activity and are deductible.

Quiz 8: Rental Property, royalties, and Income From Flow-Through Entities Line 17, form 1040, and Schedule E